IRCTC rises 7% and sets a new high as the board considers a stock split
Shares of Indian Railway Catering and Tourism Corporation (IRCTC) hit a new high of Rs 2,490 on the BSE as they rallied 7 per cent in the intra-day trade on Monday after the company announced stock split plan. The stock surpassed its previous high of Rs 2,479.45, touched on July 20, 2021.
“The Company’s board of directors is scheduled to meet on August 12, 2021 to recommend the proposal for sub-division of Company’s equity shares of face value of Rs 10 each and matters related thereto, subject to the approval of the Ministry of Railways, the Government of India, and shareholders,” IRCTC said in a post-market filing on Friday.
The board will also examine and approve the Firm’s unaudited financial statements for the quarter ended June 30, 2021, according to the company (Q1FY22).
A stock split is usually done to enhance liquidity and make the shares more affordable to small retail investors. It refers to a split in the face value of a company’s shares, in which the number of shares issued increases but the market capitalization remains the same. Existing shares are split in half, but the fundamental value is unchanged. As the number of shares increases, the price per share goes down.
The stock of the travel support services firm has outpaced the market in the last three months, rising over 40% versus an 8.5 percent rise in the S&P BSE Sensex. Furthermore, it has increased by 93% from its 52-week low of Rs 1,291 on November 4, 2020.
The Indian Railroads has authorised IRCTC to provide culinary services to railways, online railway tickets, and packaged drinking water at railway stations and trains throughout India. It has a 73 percent market share in online train bookings and a 45 percent market share in bottled drinking water, respectively.
IRCTC is a play on the normalisation of activity post Covid, and analysts expect improvement in outlook driven by accelerated adoption of online ticketing, conversion of unreserved coaches to 2S class, increase in capacity in the PDW (packaged drinking water) segment and resumption of private trains.
Analysts at Prabhudas Lilladher, for example, predict that ticketing sales would surpass pre-Covid levels as a result of incremental delta from the conversion of select unreserved coaches to reserved. Increased e-booking penetration (approximately 90%+ during Covid, up from 70-75 percent pre-Covid) is not ruled out as a potential additional volume lever, since it can be sticky in nature.
“Earnings flexibility arising from railway privatisation (IRCTC has qualified for 11 clusters), non-convenience income (particularly pertaining to payment gateway) and potential in the e-catering business (commission increased from 12% to 15%) gives us additional comfort,” the brokerage said in a March quarter result update report.
The major near-term concerns, however, are growing Covid cases and a delay in recovery, although analysts believe IRCTC’s low fixed-cost model and solid net-cash position provide confidence.
